Ivan Yotzov, Nicholas Bloom, Philip Bunn, Paul Mizen, Ozgen Ozturk and Gregory Thwaites

Inflation in the UK is currently at its highest level for 40 years. Alongside the increase in inflation, there has also been a significant increase in short-term inflation expectations. The nature of expectations formation by firms can have important implications for the path of inflation going forward. In this post, we use data from the Decision Maker Panel (DMP), a UK-wide monthly business survey, to study whether there is an effect of CPI data releases on firms’ current inflation perceptions and year-ahead inflation expectations. We find firms are accurate, on average, in their perceptions of current CPI inflation. Furthermore, one-year ahead own-price expectations respond significantly to CPI outturns, with the effects being particularly strong since the start of 2022.